What Is Operations Management? goods - are physical items that include raw materials, parts, subassemblies such as motherboards that go into computers, and final products such as cell phones and automobiles. services- are activities that provide some combination of time, location, form, or psychological value. Operations Management — the management of sysWe also discuss several other topics like What is the difference between macroevolution and microevolution?
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tems or processes that create goods and/or provide services. Supply Chain— is the sequence of organizations — their facilities, functions, and activities— that are involved in producing and delivering a product or service. Suppliers’ —> Direct Suppliers—> Producer—> Distributor—> Final Customers Supply chains are both external and internal. External: raw materials, parts, equipment, supplies, and/or other inputs to the organization, and they deliver outputs that are goods to the organization’s customers Internal: supplying operations with parts and materials, performing work on products, and/ or performing services. The creation of goods or services involves transforming or converting inputs into output. Transformation Processes (storing, transporting, repairing) Takes measurements at various points in the transformation process (feedback) and then compares them with previously established standards to determine whether correction action is needed (controL). Relatively few pure goods or pure services, companies usually sell product packages, which are combination of goods and services. Essence of the operations function is to add value during the transformation process: Value-Added is the term used to describe the difference between the cost of inputs and the value or price of outputs. (In non profits—it’s value to society) Degree of Customer Contact— Many services involve a high degree of customer contact. Labor Content of Jobs — Services often have a higher degree of labor content than manufacturing jobs do. Uniformity of Inputs — Service Operations are often subject to a higher degree of variability of inputs. Manufacturing have more control overhear their inputs, more uniform. Measurement of Productivity — Quality Assurance — Inventory — Wages — Ability to Patent — Primary Factors to consider: a. Forecasting and capacity planning to match supply and demand b. Process management c. Managing variations d. Monitoring and controlling costs and productivity e. Supply chain management f. Location planning, inventory management, quality control, and scheduling Include the exchange of information and cooperative decision making Process Management — A process consists of one or more actions that transform inputs into outputs. 1. Upper Management — govern the operation of the entire organization 2. Operational Processes — these are the core processes that make up the value stream 3. Supporting Processes — these support the core processes Managing a Process to Meet Demand ideally the capacity of a process will be such that its output just matched demand. Process Variation 1. Variety of goods or services being offered — the greater the variety of goods and services, the greater the variation in production or service requirement. 2. Structural variation in demand - predictable 3. Random variation — natural variability 4. Assignable variation — cause by defective inputs, incorrect work methods, out-of-adjustment equipment and so on. Can be costly and disruptive to company Measure via standard deviation and mean The Scope of Operations Management Forecasting: Capacity Planning: Locating Facilities Facilities Facilities and Layout Scheduling Managing Inventories Assuring Quality Motivating and training employees Managing the Supply Chain to achieve schedule, cost and quality goals Assembly Operation: buying components from suppliers Fabrication work: System design = involves decision that relate to system capacity, the geographic location of facilities, arrangement of departments and placement of equipment within physical structures, product and service planning and acquisition of equipment. Determines many of the parameters of system operation. System operation = involves management of personnel, inventory planning and control, scheduling, project management, and quality assurance. (tactical and operational decisions) Purchasing - has responsibility for procurement of materials, supplies, and equipment. Industrial Engineering- is often concerned with scheduling, performance standards work methods, quality control, and material handling. Distribution - involves shipping of goods to warehouses, retail outlets, or final customers Maintenance- is responsible for general upkeep Chapter 4. Product and Service Design Introduction What does product and service design do? The various activities and responsibilities of product and service design include the following (functional interactions are shown in parentheses) Reasons for Product and Service Design or Redesign Economic Social and demographic Political, liability, or legal Competitive Cost or Availability Technological Idea generation : Reverse engineering — dismantling and inspecting a competitor’s product to discover product improvements Research and development (R&D) — organized efforts to increase scientific knowledge or product innovation Basic Research - has the objective of advancing the state of knowledge about a subject without any near term expectation of commercial applications Applied Research has the objective of achieving commercial applications Development converts the results of applied research into useful commercial applications Legal and Ethical Considerations Product liability is the responsibility of a manufacturer for any injuries or damages caused by a faulty product because of poor workmanship or design. Uniform Commercial Code product carry an implication of merchantability and fitness that is, a product must be usable for its intended purposes ETHICS: Produce designs that are consistent with the goals of the organization. Give customers the value they expect. Make health and safety a primary concern. Human Factors: Cultural Factors: Global Product and Service Design: Virtual Teams can provide a range comparative advantages over traditional teams such as engaging the best human resources from around the world without the need to assemble them all in one place, and operating on 24 hour basis decreasing the time-to market Degree of Newness - 1. Modification of an existing product or service 2. Expansion of an existing product line or service offering 3. Clone of competitor’s product line or service offering 4. New product or service Quality Function Deployment is a structured approach for integrating the “voice of the customer” into both the product and service development process. House of Quality - correlational matrix is usually constructed for technical requirements; this can reveal conflicting technical requirements. The Kano Model — is a theory of product and service design developed by Dr. Noriaki Kano, a Japanese professor, who offered a perspective on customer perceptions of quality different from the traditional view that “more is better”. Three types of Quality: Basic— customer requirements that have only a limited effect on customer satisfaction if present, but lead to dissatisfaction if not present. Performance- customer requirements that generate satisfaction or dissatisfaction in proportion to their level of functionality and appeal. Excitement- refers to a feature or attribute that was unexpected by the customer and causes excitement (wow factor). PHASES IN PRODUCT DESIGN AND DEVELOPMENT *Feasibility Analysis *Product Specifications *Process Specifications *Prototype Development *Design Review *Market Test *Product Introduction *Follow-up Evaluation Service Blueprinting conceptualizing a service delivery time, method describing and analyzing a service process Design Capacity: The maximum output rate or service capacity an operation, process or facility is designed for. Effective Capacity: Design Capacity minus allowances such as personal time, and maintenance. System Effectiveness —- Efficiency = actual output / effective capacity *100% Utilization = actual output / design capacity * 100% Determinants of Effective Capacity Facilities Product and Service Factors Process Factors Human Factors Policy Factors Operational Factors Supply Chain Factors External Factors Capacity cushion — which is an amount of capacity in excess of expected demand when there is some uncertainty about demand. Capacity cushion - capacity - expected demand. Capacity alternatives may involve step costs - which are costs that increase stepwise as potential volume increases. Multiple break-even quantities may occur possibly one for each range. Process Selection Process types Job Shop: low volume of high-variety goods Batch: moderate volume of goods or services Repetitive: Continuous: Project: Production Lines: Standardized layout arranged according to a fixed sequence of production tasks. Assembly lines: Standardized layout arranged according to a fixed sequence of assembly tasks. U-Shaped Layouts = increased communication BECAUSE workers are clustered facilitating teamwork. Nonrepetitive Processing: Process Layouts - layouts that can handle varied processing requirements. Line balancing - the process of assigning tasks to workstations in such a way that the workstations have approximately equal time requirements. Cycle time— help determine how many stations to use- the maximum time allowed at each work station to complete its set of tasks on a unit. Minimum cycle time is equal to the longest task time. (Bottleneck) Maximum cycle time is the sum of all the task times. These establish the the potential range of output. Output Rate = (operating time per day / cycle time) Cycle Time = (operating time per day / desired output rate) Theoretical Minimum Number of Stations = (Sum of Task Times / Cycle Time) The Percentage of Idle Time = (Idle Time per Cycle / (Nactual * Cycle Time) * 100 Efficiency = Nactual * Cycle Time - Idle Time / Nactual * Cycle Time * 100 Job Design — involves specifying the content and methods of jobs. What will be done in a job, who will do the job, how the job will be done, and where the job will be done Specialization — describes jobs that have a very narrow scope Behavioral approaches to job design: Quality of Work Life Job enlargement: giving a worker a larger portion of the total task, by horizontal loading (the additional work is on the same level of skill and responsibility as the original job. Make the job more interesting by adding variety of skills required and by providing the worker with a more recognizable contribution to overall output) Job rotation: workers periodically exchange jobs. Job enrichment: increasing responsibility for planning and coordination tasks, by vertical loading. (where workers are cross-trained to be able to perform a wider variety of tasks; lean operations) Motivation Teams (Self-directed teams/Self-managed teams) Ergonomics - incorporation of human facets in the design of the workplace) Quality of Work Life Working Conditions Compensation Time-based systems — hourly and measured daywork systems compensate employees for the time the employee has worked during a pay period (salaried employees) Output-based (incentive) systems — compensate employees according to the amount of output they produce during a pay period, thereby tying pay directly to performance. Individual Incentive Plans - straight piecework where worker’s pay is a direct linear function of his or her output. Group incentive plans, which stress sharing of productivity gains with employees for output and for reductions in material and other costs. Knowledge-based systems — a pay system used by organizations to reward workers who undergo training that increases their skills. 3 parts: Horizontal skills - variety of tasks worker is capable of performing; vertical skills = managerial tasks worker is capable of; depth skills = quality and productivity results. Management compensation Recent trends Motion Study— is the systematic of the human motions used to perform an operation. Purpose is to eliminate unnecessary motions and to identify the best sequence of motions for maximum efficiency (Frank Gilbreth) Therbligs — basically elemental motions. Break jobs down into basic elements and base improvements on an analysis of these basic elements Location: profit potential Consider Supply chain: centralized or decentralized distribution Location options expand existing facility add new locations while retaining existing ones shut down at one location and move to another do nothing Global Locations - facilitating factors: Trade Agreements (lower barriers to trade) - Technology Benefits: Markets Cost Savings Legal and Regulatory Financial Other Disadvantages: Transportation costs Security Costs Unskilled labor Import restrictions Criticisms Productivity Risks Political Terrorism Economics Legal Ethical Cultural Quality Identifying a Country Government Cultural Differences Customer Preferences Labor Resources Financial technological Market Safety Identifying a Region Location of Raw Materials: Necessity, Perishability, Transportation costs Location of Markets Labor Factors Other Factors i.e. climate & taxes Identifying a Community Identifying a Site Locational Cost-Profit-Volume Analysis Factor Rating —general approach to evaluating locations that includes quantitative and qualitative inputs establish a composite score General Steps: 1. Determine which factors are relevant 2. Assign a weight to each factor that indicates its relative importance compared with all other factors 3. Decide on a common scale for all factors and set a minimum acceptable score if necessary 4. Score each location alternative 5. Multiply factor weight by the score for each factor, and sum the results for each location alternative 6. Choose the alternative that has the highest composite score, unless it fails to meet the minimum acceptable score In some cases manager may prefer to establish minimum thresholds for composite scores— if alternative fails to meet that minimum they can reject it without further considerations The CENTER OF GRAVITY METHOD to determine the location of a facility that will minimize shipping costs or travel time to various destinations, location planning for distributions centers, where the goal is typically to minimize distribution costs. When number of units to be shipped is not the same for all destinations, a weighted average must be used to determine the center of gravity, with the weights being the quantities to be shipped. Ch. 9: Management of Quality, pp. 245-247 (“Quality Certification”) How Sustainability Fuels Design Innovation, pp. 617-625 Concurrent Engineering - bringing design and manufacturing engineering people Environmental factors Slide 1: Stage One: Identify target market; customer input Develop product concept & design Stage Two: Supply Chain design, process flow, layout, capacity Estimate sales & margins; investment and expense plan Stage Three: Detailed designs- Information systems, promotion, & financial plan Queues, aggregate production plan, inventory, quality Stage Four: Integration: final business planPresentation to investors & manager Integration of Supply Chain — Product/Service The 5 M’s of Operations 1) Manpower — People; internal workers and consultants, advisors, etc. 2) Materials — Inventory; raw material, work-in-process, finished goods 3) Machinery — Equipment; machines and tools 4) Methods — Processes and Policies; how work is done 5) Money — Capital; BudgetsSlide 2a: OM: “the science of getting things done” Ethical issues in product design choices *Is there an ethical dilemma *What alternatives are there? *Who are the stakeholders? How are they affected by the decision? Customers (friends and family) Employees & Shareholders Suppliers *Does our mission or vision statement, culture, or laws direct us? *Mission: what our firm does – our current purpose Vision: What our firm aspires to be Culture: What we assume or believe we should or should not do Laws: External requirements for what we must do or may not do *Ethical theories may guide us Slide 2b: Target CostingManufacturing Target Costing $10.00 Retail Price for Widget - 5.00 Estimate 50% for Channel Margin = $5.00 Net Sales Price to Team (revenue) - 1.00 G&A (20%) - 1.00 Sales and Marketing (20%) - .50 Pre-Tax Profit (10%) = $2.50 Target Cost available for COGS (30% Mfg. Overhead, 70% Direct Labor and Materials) Braun Case? Slide 3: Quality Function Deployment Communication is essential HOUSE OF QUALITY * the basic design tool of QFD *captures the voice of the customer *helps with cross-functional planning and communication Building the House Slide 4: Product and Service Design Reasons for Product Design or Redesign Market Opportunities or Threats • Economic • Social & Demographic • Political, Liability, or Legal • Competitive • Cost or availability • Technological • Who designs and develops products and services? *Marketing *Design *Manufacturing / Operations How to assess NPD Performance? Product/Service Quality Product/Service Cost Development Time Development Cost Development Capability Development Challenges Trade-offs Dynamics Details Time Pressure Economics What is “Sustainability”? “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs” Sustainable designs and operations… Reduce the use of non-renewable materials, energy, and water and the production of pollution and waste Re-use and recycle materials, energy, and water where possible and economical Business Reasons for Change Enhance corporate image and revenue Reduce costs through more efficient use of resources Avoid liability and negligence penalties Comply with government regulations Improve community relations Improve employee health, safety, and morale Cradle–to-Grave Assessment (Aka Life Cycle Analysis) This is the assessment of the environmental impact of the product throughout its useful life - From raw material extraction or growth - Through fabrication of parts and assembly - Through use or consumption - To final disposition at the end of a product’s useful life Try to reduce, reuse, and recycle Sustainable Design Value Analysis: dematerialize, simplify, replace Recycling: recovering materials for future use Remanufacturing: refurbishing used products by replacing worn-out or defective components Design for Disassembly (DFD): designing products so that they can be easily taken apart Efficient use of resources Energy, Water, Materials Reduction of Waste by-Product Metal shavings, VOC’s, Chemicals, Oils Control of Emissions Carbon monoxide and dioxide Sulfur dioxide and mercury Reduced Use of Resources for Logistics Reduce transportation, handling, weight ISO 14000 Voluntary set of worldwide standards on environmental management Objective: (Compatible with ISO 9000 quality standards) Requires periodic inspection by outside auditors to maintain certification ISO 247000 Similar to ISO 1400 but applies to products containing re-manufactured components Requires product specifications and performance to be “equivalent to” new Eppinger’s Key Points * Quality movement from “sustainability costs more” to “we can save money” *Companies often start with operations, then realize most of the wastes are designed in - it’s a materials problem. *It’s not how much you use, it’s what you use - Cradle-To-Cradle Thinking *Not necessary to start with a detailed life cycle assessment; you know where the biggest problems are *Doesn’t need to happen all at once, little by little Design for Operations Taking into account the ease of producing and delivering the service, or the fabrication and/or assembly in product design, which is important for: Cost Productivity Quality Old “Over the Wall” Approach Concurrent Engineering Bringing design and operations together early in the design phase to simultaneously develop the product and process. Information Technology (e.g. CAD) is an important facilitator of concurrent engineering, but the organizational elements are the toughest. Advantages of Standardization Fewer parts to deal with in inventory & manufacturing Reduced training costs and time More routine purchasing, handling, and inspection procedures Product is immediately available to customers Opportunities for long production runs and automation Disadvantages of Standardization Decreased variety results in less consumer appeal Designs may be frozen with too many imperfections remaining High cost of design changes increases resistance to improvements Mass Customization The large scale production of customized goods and services enabled by: Postponement - or delayed differentiation (designing a product or process to delay the point of differentiation until as close to the customer as possible.) Modular design (grouping of component parts into subassemblies that are easily replaced or interchanged- allows quick assembly for customization, simplification of mcfg and assembly, and easier diagnosis and remedy of failures.) Component Commonality: Using the same part in multiple products to… Reduce inventory Increase bulk discounts Simplify design training Robust Design A design which is both durable and can be used under many different types of conditions. Reverse Engineering The dismantling and inspecting of a competitor's product to discover product ideas and improvements Differences between Services and Products Services are intangible, which leads to… 1. Services cannot be made and inventoried ahead of time, so… 2. They are created and delivered simultaneously and usually in the presence of the customer, so… 3. It’s hard to schedule customer arrival which leads to high demand variability hour-to-hour and difficult capacity utilization issues; but “self-service” can help, and… 4. Locations convenient to customers and the experience of being served (facility ambience, server behavior) matters a lot 5. Many services have low barriers to entry and exit due to low capital requirements and difficulty in patenting services Slide 5: Process Flow Analysis Process a mean for converting various inputs (land, labor, capital, information) into outputs (goods and services) Process Flow Diagram: Work center: people and/or equipment that perform a task Setup time: time to prepare or clean up for the task; independent of the # of jobs in the batch Run time: time required to perform the task Time standards: the expected amount of time to perform a task Throughput time: time for each unit to pass through the process, including waits Cycle time: time between job completions; the rate at which items are produced Weighted Average: Sometimes we use a weighted average: mix is 50% item a, 30% item b and 20% item c cycle time item a=20 sec.; b=50 sec.; c = 80 sec. 20 sec. x .5 = 10 sec. 50 sec. x .3 = 15 sec. 80 sec. x .2 = 16 sec. 41 sec. Capacity: the ability to process work; expressed in units of output or time Logan airport: landings / takeoffs per day HMO doctor: hours per week Ford plant: cars per month Capacity (in units) = time available / cycle time Capacity utilization = capacity required / capacity available Bottleneck: the work center with the least capacity; limits system capacity (i.e., defines the cycle time) Balance: when capacities of different work centers are similar Yield: percent of good items ( = output quantity / input quantity ) Scrap rate: percent of bad items ( = 1 – yield ) Process Flow Analysis Key Points Process flow analysis terminology and concepts Set-up time v run time (fixed v variable cost components) Bottleneck → cycle time → capacity → utilization Using labor time, labor rates, and yield to calculate costs per unit output Throughput time v cycle time Scrap rate and yield Be prepared for test problems Practice: 16 problems in the Process Analysis Note plus Ch.6 #1, #5abc Slide 6: Capacity Planning Capacity is the upper limit or ceiling that an operating unit can handle (measured in # units) Importance of Capacity Decisions Impacts ability to meet future demands Affects operating costs Major determinant of initial costs Involves long-term commitment Affects competitiveness Affects ease of management Design Capacity (dreamy) Maximum output under ideal conditions Effective Capacity Maximum capacity given product mix, maintenance, breaks, and other doses of reality Actual output (reality) Rate of output actually achieved — cannot exceed effective capacity Efficiency = Actual Output / Effective Capacity Utilization = Actual Output / Design Capacity Developing Capacity Alternatives Forecast demand and current capacity Identifying the Optimal Operating Level Production Units have an optimal rate of output for minimal cost Cost- Volume Analysis Capacity Costs Often Occur in Steps w/ Multiple Break-Even Pts. Financial Analysis Cash Flow Present Value Capacity planning in services??? Do wee need to know this? Practice problems: Chpt. 5 # 1, 2, 5, 8, 9 Slide 7: Location Why make location decisions? New company Expand markets or adjust to shifts Accommodate grow in demand Reduce costs Depletion of resources Mergers and acquisitions Process for Making Location Decisions 1) Decide on the criteria 2) Identify the important factors 3) Develop location alternatives a. Identify a country b. Identify a general region c. Identify a small number of alternatives d. Identify site alternatives 4) Evaluate and make selection Factors When Selecting a Country Government Labor Resources Financial incentives Market potential Cultural differences Safety Regional Factors Location of Raw Materials Location of Markets Cost and Availability Taxes Climate Community Considerations Taxes and environmental regulations Enticements (tax abatements, low cost loans) Attitude toward type of business Quality of life (schools, cost of living, recreation) Services (medical, fire, police) Cost and availability of utilities Site-Related Factors Land (cost, conditions) Room for future expansion Transportation (access roads, rail spurs) Zoning restrictions Customer-presence Convenience, distance Parking Driving, transportation Attractiveness Crime, disorder, etc. Evaluating Locations: CENTER OF GRAVITY METHOD Minimizes actors such as costs, distance, response - or - travel time Can include customers, suppliers, or both = ∑ xW i i = ∑ yW x∑ i i ∑ cg W i Factor Rating— ycg W i Incorporates qualitative and quantitative factors in a single weighted value Considerations: Nearness to raw materials is not usually a consideration Customer access is a Prime consideration for some: restaurants, hotels, etc. Not an important consideration for others: service call centers, etc. Tend to be volume & revenue driven, and so are Concerned with demographics, competition, traffic volume patterns, and convenience Clustering Similar types of businesses locate near one another Strategic: understand what is most important to your company’s distinctive way of competing Practice problems: Chpt. 8, #11, #12, #13 Slide 9&10: Facility Layout and Job Design First step in layout design: selecting your process type Layout is arranging your process flow within a facility First you must choose your “process type” PROCESS TYPES VVaorluiProject: “One of a kind” work in a limited time emtye Job Shop: Small scale, highly flexible Batch: Moderate volume, moderate variety Repetitive / Assembly Line: High volume, standardized goods or services Continuous: Very high volume, standardized non-discrete goods The Product-Process Matrix Where you place departments, work centers, and equipment Reasons for design of layouts include: A. New facility or new products B. Inefficient operations C. Accidents, safety hazards, or morale problems D. Changes in methods or equipment, the design of products, the volume or mix of products, or environmental or legal requirements Product Layout (Sequential) - Used for repetitive processing e.g. assembly line STATION 1 —> STATION 2 —> STATION 3 Advantages: High utilization of specialized labor and equipment Low material handling cost and WIP inventory Routine scheduling, accounting, and inventory control Low unit cost Process Layout (Functional) Used for intermittent processing (e.g. job shop) Dept. A Dept. C Dept. E Dept. B Dept. D Dept. F Advantages: System can handle a variety of processing requirements Not particularly vulnerable to equipment failures General purpose equipment often less costly Possible to use individual incentive systems Fixed Position Layout The product remains stationary Workers, materials, and equipment brought to it U-SHAPED PRODUCT LINE - Service Layouts: Two key factors: Customer contact Degree of customization Layouts: Warehouse storage layouts Retail layouts Office layouts JOB DESIGN SPECIFIES the content and methods of jobs What will be done (the tasks) Who will do what (division of labor) How the job will be done (methods and motions) Where the job will be done (layout) Two Philosophies: Efficiency and Behavioral Efficiency Approach to Job Design Emphasizes specialization Utilizes: Methods analysis Motion study Work measurement SPECIALIZATION advantages… For mgmt: for labor: 1. simplifies training 1. Low education and skill requirements 2. High productivity 2. Minimum responsibilities 3. Low wage costs 3. Little mental effort needed Behavioral approaches to job design Emphasize employee motivation Job enlargement— Giving a worker a larger portion of the total task (horizontal loading) Job Rotation Having workers periodically exchange jobs Job enrichment increasing responsibility for planning and coordination tasks (vertical loading) BASES FOR COMPENSATION Time-Based (hourly or annual salary) easier to administer more common Can lead to slacking/ “free rider” Output-based (incentive) proven to increase performance individual or group based Harder to administer; less common Knowledge-Based (least common) Ethical issues: Compensation: Shareholder profit-maximization versus “living wage”; flex- and part-time v quality of worklife Job design: Efficiency approaches can be de-skilling and create boring jobs that are easily outsourced Behavioral approaches may “over-promise” the job autonomy, task variety, and scope Practice problems: Chpt. 8, #11, #12, #13